Quantitative Easing
Large-scale purchases of long-dated assets by a central bank to lower long-term rates when policy rates are near zero.
Formula
Test: the central bank buys assets on a pre-announced scale to expand its balance sheet, targeting quantity rather than a short-term rate
Unit
₹ crore
In depth
Quantitative easing was developed for economies that had cut policy rates to near zero and needed further stimulus, so it targets the quantity of reserves and long-term yields rather than the overnight rate. Its effects on financial asset prices are clearer than its effects on the real economy, which is why it is associated with rising asset valuations and debates about inequality. India has not conducted quantitative easing in the strict sense, though the Reserve Bank's G-SAP purchases during the pandemic were similar in mechanism if smaller in scale. Unwinding it, known as quantitative tightening, has proved considerably harder than starting it.
Worked example
A central bank buying ₹1,00,000 crore of ten-year securities adds that amount to bank reserves and pushes long yields down. Equity valuations rise mechanically, because the discount rate applied to future cash flows has fallen.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Quantitative Easing” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.